Why the S&P/TSX Composite Offers a Compelling 2026 Opportunity Despite Geopolitical Risks

The S&P/TSX Composite has demonstrated remarkable resilience amid a volatile global landscape marked by U.S. Federal Reserve rate cuts and escalating geopolitical tensions. As 2026 approaches, the index's miners and financials sectors-particularly gold and banking subindices-stand out as key drivers of growth, supported by macroeconomic tailwinds and structural shifts in investor behavior. This analysis explores how these sectors have navigated recent challenges and why their valuation sustainability positions them as compelling opportunities for 2026.

Miners: Gold's Structural Demand and Sectoral Outperformance

The mining sector, especially gold and silver, has emerged as a cornerstone of the S&P/TSX Composite's performance. Gold prices surged to record highs in late 2025, closing at $4,239.43 per ounce, driven by central bank purchases and ETF inflows. According to a report by US Funds, gold miners raised a record $6.7 billion in equity during Q3 2024, with Bank of America naming them its top investment theme for 2025. This reflects a broader shift in capital toward undervalued safe-haven assets amid AI stock volatility and geopolitical risks such as U.S.-Canada trade tensions.

However, gold mining stocks have historically lagged bullion prices. From April 2022 to late 2024, equities underperformed by 38 percentage points, as Western investors remained underweight while central banks and non-Western buyers drove price gains. This disconnect has begun to narrow in 2025, with outperformers like McFarlane Lake Mining and Omai Gold Mines surging by 650% over 12 months. Analysts suggest that further U.S. rate cuts and a weaker dollar could rekindle investor demand for gold equities, provided operational costs and exploration delays are managed.

Financials: Banking Sector Resilience Amid Policy Uncertainty

The S&P/TSX financials sector, particularly the banking subindex, has shown adaptability to shifting monetary policies. In 2025, the S&P 500 Financial Sector Index gained over 30%, buoyed by a post-election economic rebound. While high U.S. rates have strained developing economies with dollar-denominated debt, Canadian banks have navigated the environment cautiously. For instance, Royal Bank of Canada (RBC) and Toronto-Dominion Bank (TD) reported mixed Q2 2025 results, with TD exceeding earnings expectations despite increased provisions for credit losses.

Geopolitical risks, including U.S. trade policy shifts and conflicts in the Middle East, remain a drag. J.P. Morgan Research estimates a 40% probability of a U.S. recession by mid-2025, which could pressure credit quality. However, the Bank of Canada's rate cuts in late 2024 and early 2025 have provided a buffer, with analysts forecasting 8% earnings growth for the S&P/TSX Composite in 2025. The sector's valuation sustainability hinges on resolving trade uncertainties and stabilizing inflation, which could allow banks to benefit from falling U.S. rates and reduced credit risk.

Valuation Metrics: Gold and Banking Subindices in Focus

Valuation metrics for the gold and banking subindices highlight divergent trajectories. The S&P/TSX Global Gold Index delivered a 50% total return YTD in 2025, supported by a low debt-to-equity ratio and strong return on equity (ROE). While its P/E ratio remains only marginally higher than the parent index, the sector's EV/EBITDA multiple for Gold.com, Inc. (GOLD) fell to 6.4x in 2024 from 7.5x in 2023, reflecting improved earnings visibility.

For the banking subindex, EV/EBITDA metrics remain mixed. The S&P/TSX Composite Banks Index reached 6,134.940 in November 2025, up from 5,896.200 the previous month. However, the sector's exposure to trade tensions and regulatory shifts-such as U.S. tariffs-introduces volatility. note that Canadian banks' defensive positioning and fiscal stimulus in 2026 could offset these risks.

Macro-Driven Growth and 2026 Outlook

The S&P/TSX Composite's 2026 potential is underpinned by three macro themes:
1. U.S. Rate Cuts: A Fed pivot to liquidity support measures in 2024-2025 has bolstered gold's appeal as a hedge against inflation and currency devaluation.
2. Geopolitical Diversification: Central banks' gold accumulation and ETF inflows signal a structural shift toward diversifying reserves away from dollar assets.
3. Sectoral Rebalancing: As AI and tech stocks face valuation corrections, mining and banking sectors are attracting capital for their tangible assets and earnings resilience.

While challenges like operational costs for miners and credit risk for banks persist, the interplay of falling U.S. rates, fiscal stimulus, and geopolitical fragmentation creates a favorable backdrop for the S&P/TSX Composite. Investors who position for 2026 should prioritize undervalued subindices like gold and banking, where macro trends align with structural demand and policy tailwinds.